Wednesday, 14 March 2018

Are there really green shoots?

Philip Hammond adopted an upbeat note in his spring statement yesterday, but is the news really that good? What concerned me is that the forecast growth rate is around the 1.5 per cent level when historically I would have expected 2 to 2.5 per cent in the UK. We do not know what the Brexit settlement will be and how it will impact on the economy and there are wild variations in the forecasts of the GDP effects, but I would expect growth to be lower than otherwise would have been the case.

Paul Johnson of the Institute for Fiscal Studies tweeted, 'Growth standards dreadful compared with what we thought in March 2016, dreadful by historical standards and dreadful compared with most of the rest of the world.'

The Chancellor is going to have find more money for health and social care in the autumn budget. Local authorities have experienced a 49 per cent cut in real terms and an increasing number are in a situation where they are going to only be able to provide statutory services. However, the forecast reduction in the budget deficit is less than some analysts had been anticipating.

The Treasury dislikes hypothecated taxes, but is there a case for an increase in income tax to be devoted to health and social care? As someone who already pays a five figure sum in income tax each year, I would accept that.

Ten years after the financial crisis people have seen their standard of living stagnate or decline and public services under pressure. Ultimately, as Bagheot pointed out in The Economist this week, this undermines trust in democracy.

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